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October 1, 1998

BMC HAS ITS EYE ON SERVICES ACQUISITIONS

By CBR Staff Writer

Systems management tools company BMC Software Inc is looking to build up a billion-dollar international services business, a dramatic departure for the company. BMC, which achieved sales of $730m to March 1998, has achieved its strong and sustained growth with virtually no services revenues. But like its competitor Computer Associates International Inc, it intends to use its considerable resources to make major acquisitions to achieve its ambitions. CA tried and dramatically failed to buy services giant Computer Sciences Corp for $9.8bn early in 1998. Both BMC and CA are looking beyond the services revenues themselves towards the additional opportunities of cross-selling and support. IBM, CA executives have noted, takes $2 in services for every $1 it takes in license sales for its Tivoli systems management product. That figure, with all its revenue implications, has also intrigued BMC executives, who have recently put together an ambitious plan to build BMC into a $5bn software and services giant by 2002. But the size of the services opportunity, big as it is, is not the main point; BMC’s main concern is that it becomes established, with IBM and CA, as one of the three leading suppliers in this market. And that means it needs to win more business for its core Patrol products, which have been re-positioned not as system management tools, but as ‘application service assurance’ tools. We have not traditionally been in the services business. But the success of our products will go up if we can provide services, says James Ormerod, head of marketing for BMC Europe. BMC has not previously moved into services because it wanted to maintain its high margins, among the highest in its sector. Now, however, revenue growth and prestige may be more important. Both CA and IBM position their products as ‘frameworks’, a term which suggests they can provide a complete infrastructure for managing all corporate computing. By inference, the rest are all merely suppliers of ‘point products’, junior partners that develop specialised tools for specific purposes. BMC does not want to be seen that way. It believes that frameworks are difficult to implement, expensive and unnecessary for many users. It says it can offer integrated suites of products that can be quickly effective. It has recently taken its 180 products, shaken out the aging or ill-fitting ones, and will now sell them as a group of integrated suites, under the new ‘application service assurance’ marketing message. The goal is that users of any enterprise applications – on mainframes, Unix or NT – will be able to use BMC’s products to get robust, uninterrupted service, good performance and, in the event of failure, fast recovery. This approach will now underpin BMC’s R&D, its marketing, its alliances and its acquisitions – for which it has a strong share price and more than $1bn in cash or equivalents. While it still seeks some technology which it can integrate into its suites, its main interest in the short-term is likely to be in services companies with expertise in enterprise applications.

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